How can businesses combat increased pressure on cash flow and profitability?

Over recent times, almost all businesses have been impacted by a barrage of cost increases which have put substantial pressure on profitability and cash flow.

Factors contributing to cost increases

The last few years have seen many contributing factors, all the way back to the increase in material costs during the Covid-19 pandemic, the subsequent energy price crisis, interest rate increases, and more recently, the increases in National Minimum Wage (NMW) and National Insurance rates for employers. Additionally, businesses also need to account for recent changes to business rates, with the standard multiplier increasing to 55.5p and, for those in retail hospitality and leisure, the level of relief provided by the Retail Hospitality and Leisure scheme reducing from 75% to 40%.

The need for up-to-date cash flow forecasts

This constant volatility in the cost base of many businesses makes it even more important than ever to ensure that business owners have up-to-date cash flow projections in place, and that these are regularly reviewed and updated.

Without this clear visibility, it is impossible to make fully informed and accurate decisions to combat cost increases.

Many businesses may still be unaware of the scale of impact the latest changes, introduced in April 2025, will have on their cash flow over the course of a year. Armstrong Watson’s free forecasting tool can help determine how these changes might impact your salary bill.

Benefits of timely cash flow projections

Once you know the exact effects of the increases, you will then be able to make the best informed and quantifiable decisions, whether that is reviewing pricing structures to restore margins, revisiting product ranges and exploring new markets to diversify revenue streams, or reducing spending in certain areas, these decisions are best made when you have the correct, and timely, information to hand.

To improve cash flow and profitability, businesses can also consider strategies such as reducing excess stock and ensuring timely collection of payments from customers.

Early cashflow projections will highlight any pinch points that may require short-term funding but equally, if a business is looking to undertake a significant purchase of machinery or a new building, a ‘stress test’ can indicate how this would affect cash flow.